Changed method for the application of the risk weight floor for Swedish mortgages

FI’s Board of Directors decides to change the method used to apply the current risk weight floor for Swedish mortgages through Pillar 2 by replacing it with a corresponding requirement under Article 458 of the Capital Requirements Regulation. The change will enter into force on 31 December 2018.

Structural changes on the Swedish banking market could lead to a situation where different participants on the Swedish mortgage market would face different capital requirements for Swedish mortgage exposures. Finansinspektionen has therefore evaluated how the resilience of the Swedish banking system can be maintained while also counteracting a distortion in the competition on the market and makes the assessment that the manner in which the risk weight floor is currently applied needs to change. This change is necessary to safeguard financial stability, by upholding the current level of capital requirements for mortgage exposures in Sweden, and maintain a level playing field on the Swedish mortgage market. Both of these goals are achieved by replacing the current risk weight floor with a requirement under Article 458 of the Capital Requirements Regulation. The new requirement will be included in the Pillar 1 requirements.

The credit institutions that are subject to the measure are the credit institutions that have permission to use the IRB approach and have an exposure to Swedish mortgages. Finansinspektionen will apply for reciprocity of the measure from concerned Member States to ensure that other Member States apply the risk weight floor to nationally authorised branches located in Sweden. Branches of foreign credit institutions in Sweden that are exposed to Swedish mortgages and use the IRB approach for these exposures may therefore also be subject to the requirement.

The change will enter into force as of 31 December 2018 and will be in effect for two years.